Generally there are minimum requirements for these accounts. Some managers will take accounts as low as $50,000 but most require $100,000 or greater. To be properly diversified, an investor should have enough money to have several managers.

If the FA is not going to manage the money, why do we need him?

The FA manages the manager. If performance is not up to snuff, the FA should recommend to the client that they fire the manager and get a new one.

What is the big challenge in converting to fees?

Income reduction

Why will the FA experience income reduction in converting to fees.

Here is a simple example. A $100,000 investment into a mutual fund sold at an upfront 4% commission will pay $4000 gross commission. That same $100,000 put into a managed account will pay, say 1 1/2% annual fee. That's $1500 per year. But the fee is paid quarterly, so you get $350 today as opposed to $4000.

What are two reasons FAs want to convert to fees?

1) They can start off a year knowing they have an income and 2) They can sell the client on the idea that they are on the same side of the table and no longer have a vested interest in changing the client's investment mix.